Opinion
No. 00 C 1754
March 29, 2002
ORDER
The Second Amended Complaint that is the subject of the pending motion to dismiss is plaintiff's third attempt to allege a cause of action arising out of the failure of its hair salon. In this order, the court addresses the motion to dismiss filed by defendants Libby D. Salberg, Howard D. Deutsch, and Deutsch Salberg. For the reasons set forth below, the motion to dismiss is granted, and the complaint in its entirety is dismissed as to these defendants.
The facts of this case, as alleged in the Second Amended Complaint, are straightforward, although the details are blurry. Plaintiff, an Ohio corporation, operated a hair and beauty salon in Chicago called "Jacques Dessange Hair Salon" pursuant to a licensing agreement with defendant French Hair Style and Beauty Corporation ("French"), a New York corporation. Defendant Yves Anthonioz is an executive vice president of French. French is a wholly-owned subsidiary of a French company, Franklin Holding, S.A. ("Franklin"). Plaintiff alleges on information and belief that defendant Anthonioz is also an officer of Franklin. Plaintiff also alleges that Franklin is the owner of the trademark "Jacques Dessange" and that the New York subsidiary, French, opened, operated or licensed hair salons in various United States locations using the name "Jacques Dessange."
Defendant Jacques Dessange, Inc. ("Jacques") is a New York corporation, and, like French, a wholly-owned subsidiary of Franklin. Jacques, plaintiff alleges, owned and operated "Jacques Dessange" salons in the United States and also licensed others to operate such salons. Plaintiff does not explain the apparent overlap between the alleged activities of French and Jacques in opening, operating and licensing "Jacques Dessange" hair salons throughout the United States.
Plaintiff alleges that it entered into a license agreement with French obligating plaintiff to employ French-speaking hairstylists who were familiar with the "Jacques Dessange" method of hairstyling and coloring. (¶ 14.) These hairstylists were to be supplied to plaintiff by Franklin at plaintiff's expense. Also at plaintiff's expense, French was to "provide all the necessary conditions for these perspective [sic] employees, consultants, trainees, etc., to enter the United States and provide Plaintiff with the service or employment required." (¶ 15.) French hired defendants Salberg, Deutsch, and their law firm Deutsch Salberg (hereinafter collectively "the attorneys") to provide the legal services necessary to permit the hairstylists to enter the United States from France. According to the complaint, the attorneys had provided these services to Jacques Dessange, Franklin, Anthonioz, and French on many other occasions due to these parties' need to bring large numbers of French hairstylists into the United States to work at Jacques Dessange salons. (¶¶ 17, 18.) Plaintiff alleges that it hired the attorneys at the personal insistence of Anthonioz and believed them to be knowledgeable professionals. (¶ 20.) Plaintiff does not explain the apparent inconsistency between the allegation that French hired the attorneys and that plaintiff did so itself at Anthonioz's insistence.
The license agreement, a copy of which is attached to the complaint, includes no such provision, but plaintiff asserts in its brief that it had an agreement to the effect alleged, albeit not explicitly set forth in the license agreement.
All references to paragraph numbers refer to the Second Amended Complaint.
The attorneys advised plaintiff and French to apply for L-1(a) visas for the French hairstylists, but in fact the hairstylists were not eligible for such visas. The attorneys, over the course of two days in February 1997, filed five false and fraudulent visa applications, each containing a number of material misrepresentations. These applications were verified by Anthonioz on behalf of Jacques Dessange and were submitted with the authorization of Jacques Dessange, Franklin, and French, all of whom were part of an alleged conspiracy. Plaintiff alleges that this "course of conduct" was undertaken with the intent to deceive the INS "which in turn deceived Plaintiff into believing the Licensing Agreement was being properly followed." (¶ 53.)
The Second Amended Complaint alleges that the false visa applications were submitted on February 4 and 5, 1997 (¶ 51), but the documentation attached to that pleading indicates that one application was submitted on or about October 7, 1996, and the other four on or about February 4, 1997.
As a result of the fraudulent visa applications, the five French hairstylists entered the United States and began employment with plaintiff in Chicago. However, on October 30, 1997, the INS raided plaintiff's salon and took the five French hairstylists into custody. As a result, plaintiff was forced to close its salon until December 1, 1998, and ultimately was forced to close its salon permanently. (¶¶ 32, 33.) On December 31, 1997, the INS "issued a Notice terminating the hairstylists' visas and declaring the visas invalid." (¶ 36.)
Plaintiff's State Law Claims
Plaintiff brings a number of common law and Illinois statutory claims against the attorneys for their alleged improprieties in connection with the visa applications: breach of the license agreement in Count I, common law fraud in Count II, violation of the Illinois Consumer Fraud and Deceptive Practices Act in Count III, and violation of the Illinois Franchise Disclosure Act in Count V. Illinois law is clear, however, that any action against an attorney under Illinois law, whether for tort, contract, or otherwise, "arising out of an act or omission in the performance of professional services," is treated as legal malpractice and "must be commenced within 2 years from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought." 735 ILCS 5/13-214. 3(b). Plaintiff does not argue otherwise.
Count I seeks to allege a cause of action for breach of the license agreement, Exhibit A to the Second Amended Complaint, against the attorneys for failing to provide qualified, INS-approved French hairstylists for plaintiff's salon. The License Agreement is between plaintiff and French. The attorneys are not parties to the License Agreement, and plaintiff has pleaded nothing to suggest any basis on which it seeks to hold them liable for the alleged breach of the agreement. Indeed, in response to the motion to dismiss, plaintiff acknowledges that these defendants "cannot be sued directly under such agreement." However, plaintiff asserts, it can sue these defendants for legal malpractice.
Applying the two-year statute of limitations, the court concludes that all of plaintiff's state law and common law claims come too late.
Because there are no disputed facts concerning the events relevant to determining when the statute of limitations began to run, the court can resolve this question on a motion to dismiss. "[T]he question of whether plaintiff had sufficient facts to place it on inquiry notice of a claim . . . is one of fact" and may therefore be "`inappropriate for resolution of a motion to dismiss under Rule 12(b)(6).'" Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 669-70 (7th Cir. 1998) (quoting Marks v. CDW Computer Centers, Inc., 122 F.3d 363, 367 (7th Cir. 1997)). However, "if a `plaintiff pleads facts that show its suit [is] barred by a statute of limitations, it may plead itself out of court under a Rule 12(b)(6) analysis.'" Kauthar, 149 F.3d at 670 (quoting Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 608 (7th Cir. 1995)).
The parties' dispute centers on when the applicable two-year statute of limitations began to run. The improper visa applications that are the source of plaintiff's alleged injury were filed in or before February 1997; at or about this time, the "Attorneys advised Plaintiff that [the L-1 visa] was the proper and requisite visa to be used. . . ." (¶ 25.) On October 30, 1997, the INS raided plaintiff's salon and arrested the hairstylists for whom the attorneys had procured visas, "alleg[ing] that this action was done because the hairstylists entered the United States on invalid Visas. . . ." (¶¶ 30, 31.). On December 31, 1997, "INS issued a Notice terminating the hairstylists' visas and declaring the visas invalid." (¶ 36.) Plaintiff filed suit on March 22, 2000.
Plaintiff claims that it had no reason to know of its injuries until April 1998, and this suit was therefore filed on time. (Resp. to Mot. to Dismiss, at 2.) Plaintiff does not indicate what happened in April 1998, and indeed, it elsewhere argues that the statute of limitations did not begin to run until May 12, 1999, the date on which the appeal of the revocation of the stylists' visas was denied. (Id. at 3.) This disparity in dates is inconsequential. Illinois law leaves no doubt that taking as true the facts set forth in the Second Amended Complaint, the statute of limitations began to run, at the latest, on December 31, 1997, and that plaintiff's state law claims against the attorneys are time-barred.
The Illinois Supreme Court's decision in Hermitage Corp. v. Contractors Adjustment Co., 651 N.E.2d 1132 (Ill. 1995), is closely analogous. In Hermitage, plaintiffs had retained defendant to prepare a mechanic's lien. Defendant prepared the lien and recorded it on January 29, 1985. Subsequently, plaintiffs sought to enforce the lien in a foreclosure suit in the amount of $93,427.18. On July 16, 1987, however, the circuit court reduced the lien to $17,332. Plaintiffs thereafter moved for reconsideration, a motion which the circuit court denied on March 16, 1989. Suit was filed on January 9, 1991. The question before the Illinois Supreme Court was when the relevant statutes of limitations began to run.
Notably, Hermitage did not involve section 214.3, but applied the same discovery rule to determine when the statute of limitations began to run. 651 N.E.2d at 1139.
The supreme court rejected the 1985 date urged by the defendant, finding that at that time, plaintiffs had no reason to be aware of the defects in the lien. It also rejected the 1989 date, urged by the plaintiffs, who argued that until their motion to reconsider was denied, "they could not be certain that they were injured." Id. at 1138. Rather, the statute began to run, the supreme court held, on July 16, 1987, the date on which the circuit court reduced the lien: on that date, the plaintiffs "were aware of the possible defect in the mechanics lien . . . and were aware that the lien may have been improperly prepared." Id. At this point, the court held, plaintiffs were required to inquire further to determine whether an actionable wrong had been committed. Id. Surely, the supreme court observed, the circuit court could have reconsidered its decision in 1989, but the plaintiffs were on notice long before this "that they had a problem with the mechanics lien." Id. (emphasis added). Were the rule otherwise, the supreme court noted, "the statute of limitations could be postponed indefinitely until all avenues of appeal in the earlier suit are exhausted." Id. at 1139. Hermitage makes clear that the statute of limitations in the case at bar began to run when plaintiff had reason to know he had "a problem" with the visas, not when his appeal of the visa revocations was finally adjudicated.
The analysis in Hermitage is consistent with that of other analogous Illinois cases. In reaching its conclusion, the supreme court in Hermitage cited favorably the cases of Zupan v. Berman, 491 N.E.2d 1349 (Ill.App.Ct. 1986), which it characterized as holding that the statute of limitations in a legal malpractice case runs from the date of the adverse judgment, not from the date on which the post-trial motions are denied, and Belden v. Emmerman, 560 N.E.2d 1180 (Ill.App.Ct. 1990), which the supreme court described as holding that the statute of limitations for legal malpractice begins to run when the circuit court enters the order which is the subject of the malpractice action, not when the circuit court declines to vacate that order. These cases uniformly make clear that under Illinois law, the statute of limitations for legal malpractice begins to run, at the latest, when an injured plaintiff reasonably should know that there is a problem with the matter he or she depended on the lawyer to handle, not when he or she is certain that the lawyer was wrong.
The statute setting out the limitations period for legal malpractice changed in 1991, but both Zupan and Belden apply the discovery rule.
The holding of Hermitage dooms plaintiff's common law and Illinois statutory claims against the attorneys. When the INS raided plaintiff's salon and arrested its hairstylists, plaintiff suffered an injury and should have been on notice that it had a problem with the visas. And if for some reason plaintiff did not understand what was happening on the day of the raid, it surely knew it had a problem with the visas when the INS, in December 1987, declared them invalid. This March 22, 2000 suit against the attorneys was filed too late. Accordingly, Count I, II, III, and V are barred by the statute of limitations and for this reason are dismissed.
Plaintiff does not suggest that the attorneys somehow induced its delay in filing suit. Cf. Jackson Jordan, Inc. v. Leydig, Voit Mayer, 633 N.E.2d 627, 632 (Ill. 1995) (holding that law firm was equitably estopped from raising statute of limitations where it constantly reassured client that its legal position would eventually prevail).
Count IV: RICO
In this court's March 27, 2001 order dismissing the First Amended Complaint, plaintiff was instructed that if it attempted to replead, it was required to indicate which substantive provision of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., it alleges was violated, along with specifying various other essential elements of a RICO cause of action. Plaintiff has failed to follow this direction, shifting to the defendants and the court the burden of assessing the adequacy of plaintiff's allegations under each alternative RICO section. This would be reason enough, given that this is plaintiff's third try, to dismiss its RICO claim.
With respect to the attorney defendants, however, it is fairly easy to conclude that the RICO section plaintiff must have in mind is § 1962(c). Section 1962(a) precludes the investment of funds derived from racketeering activity in an enterprise engaged in, or whose activities affect, interstate or foreign commerce. While Count IV alleges that all the defendants received income from the racketeering activity in which they engaged (¶ 62), there are no allegations concerning the investment of such racketeering proceeds in an enterprise affecting interstate or foreign commerce. Similarly, there is no indication that plaintiff is attempting to allege a violation of § 1962(b), which prohibits the acquisition or maintenance of an interest in or control of an enterprise. Rather, the substantive provision which plaintiff appears to be seeking to allege is § 1962(c), the conduct of an enterprise's affairs through a pattern of racketeering activity. Count IV, read liberally, suggests that the defendants conducted the enterprise, being their joint effort to expand the Jacques Dessange presence in the United States, through a pattern of violations of 18 U.S.C. § 1546, and, in violation of 18 U.S.C. § 1962(d), conspired to do so.
Plaintiff's RICO count charges that the attorneys, Anthonioz, French, Jacques and Franklin, were all "persons" within the meaning of RICO and "formed an association in fact for the purpose of extorting money from Plaintiff for Defendants [sic] own gain." (¶ 60.) It is alleged, in conclusory fashion, that the defendants "conspired to violate 18 U.S.C. § 1961" (RICO's definition section, not its description of prohibited conduct) and conspired to obtain L-1 visas in violation of 18 U.S.C. § 1546 "through a pattern of racketeering activity." (¶¶ 63, 64.) The racketeering scheme, as described in the RICO count, consisted of defendants' efforts to increase the number of "Jacques Dessange" hair salons in the United States which required, in turn, the importation of large numbers of French hairstylists. To achieve this goal, the fraudulent visa applications described above were prepared and submitted.
Plaintiff also alleges that the defendants "extorted money from Plaintiff in violation of 18 U.S.C. § 1546 and 18 U.S.C. § 1961(1)(A)" and thereby obtained $1,544,203 from plaintiff. (¶ 19.) There is nothing in the Second Amended Complaint, however, that supports the conclusory allegation that defendants engaged in extortion and the court accordingly ignores the extortion allegation as not well-pleaded. Since "racketeering activity" is also defined to include violations of 18 U.S.C. § 1546, plaintiff's allegation of the submission of fraudulent visa applications is an adequate allegation of the commission of a RICO predicate offense without considering the extortion allegation. See 18 U.S.C. § 1961(1)(B).
Except with respect to its allegations concerning visa applications prepared and submitted by the attorneys, plaintiff alleges virtually nothing to satisfy the requirement of delineating the various roles the various defendants played in the alleged RICO scheme. See, e.g., Goren v. New Vision Int'l Inc., 156 F.3d 721, 726 (7th Cir. 1998). The attorneys' role in the scheme is carefully described however, since it is the visa applications prepared by the attorneys which form the predicates for the alleged scheme. That plaintiff has adequately described these defendants' roles, however, is of no avail, because plaintiff's allegations demonstrate that the attorneys are not proper defendants in the RICO scheme alleged. The reason is that plaintiff has not alleged that the attorneys had any role in directing the affairs of the enterprise plaintiff has alleged, an essential element of a RICO claim against any defendant.
In Reves v. Ernst Young, 507 U.S. 170 (1993), the Supreme Court construed the language in § 1962(c) making it unlawful "for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . ." The Court rejected the contention that this language is satisfied by a showing of "almost any involvement in the affairs of an enterprise." Id. at 177-78. Rather, the Court held, this language signifies "an element of direction," and a defendant must be shown to have had "some part" in directing the enterprise's affairs. In other words, "one is not liable under that provision unless one has participated in the operation or management of the enterprise itself." Id. at 182-83.
As the Seventh Circuit explained in Goren v. New Vision Int'l, Inc., 156 F.3d 721 (7th Cir. 1998) — a case not unlike the case at bar in that it involved an ostensibly legitimate business operation alleged to have conducted its affairs through a pattern of racketeering — it is not sufficient merely to allege a business relationship between the defendants, as plaintiff has plainly done. Id. at 727. In Goren, the Seventh Circuit affirmed the dismissal of a RICO complaint on the ground that it did "not contain any factual allegations that would lead to the conclusion that any of [certain] defendants were involved in directing the affairs of New Vision, the alleged enterprise." Id. The court of appeals noted that the complaint alleged that each of the defendants provided services to the corporation, and described the nature of the services they provided, all of which appear to have been integrally related to the fraud scheme charged. Nevertheless, the court of appeals said, "These averments clearly allege the existence of a business relationship between these defendants and the enterprise, but do not indicate that these defendants `took some part in directing [New Vision's] affairs.'" Id. (quoting Reves, 507 U.S. at 179).
In Slaney v. International Amateur Athletic Federation, 244 F.3d 580 (7th Cir. 2001), plaintiff attempted to assert a RICO claim against, among others, the United States Olympic Committee ("USOC"), for its role in administering the drug testing program of the International Olympic Committee and its constituent organizations, alleged by plaintiff to be fraudulent. Analyzing the allegations of the complaint, the court of appeals observed that the role ascribed by plaintiff to the USOC was essentially as an agent of the International Committee, with the responsibility for carrying out its mission. The complaint lacked any suggestion, however, that the USOC took any part in managing the enterprise or had any control over its activities, and for this reason, failed to state a RICO claim against the USOC. Id. at 598.
These cases make clear that to state an adequate RICO claim, plaintiff must allege that each defendant had some role in directing the enterprise's affairs. The Second Amended Complaint alleges nothing to suggest that the attorneys played any role in directing or controlling the affairs of the enterprise plaintiff has alleged.
Focusing on the alleged scheme to expand the United States presence of Jacques Dessange salons using French-trained hairstylists, there is no allegation or suggestion that the attorney defendants exerted any direction or control. Rather, the attorneys were engaged to provide services needed to advance the scheme — to prepare and file fraudulent visa applications — at the request and at the direction of French, Jacques, Franklin and Anthonioz. As the Seventh Circuit stated in Goren, 156 F.3d at 728, "performing services for an enterprise, even with knowledge of the enterprise's illicit nature, is not enough to subject an individual to RICO liability." The attorneys are not appropriate RICO defendants and are dismissed from Count IV.
Conclusion
For the reasons set forth above, the Motion to Dismiss is granted.